Question

Panama Canal, which took 10 years to build and opened in 1914, handles 5% of world trade.
The government of Panama recently initiated a project to expand the canal in order to
increase its share of global shipment, boost job creation, stimulate economic growth and
boost foreign exchange and tax revenue. Among other things, the expansion project involves
the building of a third set of locks that can accommodate mega cargo ships carrying up to
12,000 containers; at the moment the biggest ships that can navigate the canal carry 5,000
containers. The work was awarded to GUPC (Grupo Unidos por el Canal), a consortium of
international construction firms led by Sacyr of Spain. Others are Impregilo of Italy, Belgian
firm Jan De Nul and Constructora Urbana, a Panamanian firm. Work began in 2009 and was
expected to be completed in September 2014 at a total cost of $3.2 billion, according to the
contract.
As of January 2014, the work was already nine months behind schedule (with project
completion now expected in June 2015) and a cost overrun of $1.6 billion had been incurred
as of January 2013. According to GUPC, the cost overrun and schedule slippage were due to
“many and varied unforeseen costs which came up during these gigantic works... They are
technical matters, questions over cement ingredients, geotechnical matters, geological
questions, taxes matters, financial matters, labour issues and weather conditions". However,
Panama Canal Authority (APC), the Panamanian state-owned company responsible for
managing the canal and overseeing the project, attributed the problem partly to a delay of
four months shortly after the project began as a result of GUPC’s attempt to use low-quality
cement, which was rejected by the canal authority.
Since January 2013, there had been an escalating dispute over who should bear the additional
cost of $1.6 billion. The position of APC was that GUPC should respect the existing contract
by absorbing the additional cost, arguing that the cost overrun was due to events that were
"normal" in such a construction project. But GUPC said the cost overrun was due to
"unforeseeable" circumstances and delays caused by APC. On December 30, 2013, the
dispute had become so bad that GUPC threatened to halt work unless the Panamanian
government paid the money within 21 days. In response, the president of Panama, President
Ricardo Martinelli, threatened to go to Europe to demand that the governments of the
member firms of GUPC “take moral responsibility for what happened, because it is not
possible that a company puts such a huge extra charge on expansion work."
News of the suspension threat sent Sacyr’s shares plunging by more than 18% on the Madrid
stock exchange. On January 4th, 2014, Spain's minister for public works, Ana Pastor, flew to
Panama for an emergency meeting with President Martinelli and also met all the parties
involved to try to resolve the impasse. According to a spokesperson for Spain's foreign
ministry, "Panama is a country that is close and friendly towards Spain, and we share the
desire and interest to find a solution as soon as possible". Spain's ambassador to Panama,
Jesus Silva, added that all stood to lose out if the contract fell through.

Question
Explain the main issue in dispute, the disputants involved, and why this dispute was or
may be related to the following aspects of the project:
i. Project Scope
ii. Project Quality
iii. Project Schedule
iv. Project Risks
v. Project Procurement

Answer 1

As the project was very vast and had high budget there wall full possibility of occurrence of dispute as usually large projects don't tend to be completed in time and cost also Overruns as many years pass and the rate of ingredients may increase more than expected at the beginning so we'll discuss how the dispute is being related to different aspects of the projects :

i) Project Scope : It refers to the functioning of the project or what specialities are going to be delivered as Panama Canal was expanded to pass ships of 12000 containers but due to the dispute and time extension in completion of the project the company would not stick to the previous rules as it had also given threat of halting the work and then due to that the functioning or delivering of the project is being reduced to some extent and would not be appreciated by the government as extra cost has also be given and there should be no problems related to the project scope.

ii) Project Quality : As written in the context it is seen that the quality used of the cement ingredient was also not of that good quality and that would reflect in the structure and project quality. This dispute would surely have it's role in project quality as for good quality projects or structures the materials requires should be of very high quality and labour should be trained as well which is not being seen here but GUPC.

iii) Project Schedule : It was obviously seen that the project may take more time than the expected which was five years but after the dispute the scheduling of project is affected more and more as some times GUPC has also given threat to halt the work and once it delayed as government took 21 days to pay the overrun amount and it is not possible that if any dispute occurs it would not affect the project Schedule as the work done is slowed down due to the dispute and would not progress rapidly until it is solved.

iv) Project Risks : The main risk of the project was that it may not be completed as the overrun cost was 50% of the cost assigned to the project at which the deal was done initially. The problem was that who is going to pay the extra amount of cost and if GUPC leaves the project in midway it would take long time to hire any other corporation to complete the project and the charge would increase day by day as the project is on halt so the main risk of not completing of project is being solved even after the dispute.

v) Project Procurement : Procurement is an act of obtaining all the materials and service that are very essential for the completion of the project. The project procurement process should be successful as the work would only proceed as if the supply of goods is on time and due to the dispute if the work is on halt or the payment is not being done it would affect the project procurement as goods and supply would not proceed due to the lack of payment.